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MENA’s economic growth to slow due to the declining oil boom
The World Bank report says the downward revision to growth expectations reflects predicted slowing in major trading partners and new oil output cuts
Economic activity in the Middle East and North Africa (MENA) region is expected to decelerate in 2023 after strong growth in 2022, the World Bank stated in its most recent Global Economic Prospects report. The region’s growth is predicted to drop from 6.1% in 2022 to 3.3% and 2.3% in 2023 and 2024, respectively.
“Many oil exporting economies in the region enjoyed a rapid expansion in exports and production last year. In 2022, Kuwait, Saudi Arabia, and the United Arab Emirates saw output expand at its fastest pace in about a decade. With fixed exchange rates and fuel subsidies, Gulf Cooperation Council countries were able to maintain consumer inflation well below the global average,” the report states.
The UAE’s growth predictions for 2022 and 2023 have been updated from their initial forecasts by 1.2% and 0.7%, respectively. The rise of the non-oil sector is expected to drive the OPEC member’s GDP to grow by 4.1% this year and 5.9% in 2022.
The bank has revised its growth estimates for Saudi Arabia to 3.7% in 2023 and 2.3% in 2024. The report stated that the downward revision to growth expectations reflects predicted slowing in major trading partners, new oil output cuts, and lagged effects of tighter domestic monetary policy.
While continuing to gain from earlier reforms, growth in the oil-importing nation of Egypt is predicted to decelerate to 4.5% in FY2022/23 (July 2022–June 2023) as high inflation erodes real incomes and weighs on domestic spending.
“Weakening growth of external demand is also likely to limit activity in the manufacturing and tourism sectors. Fiscal and monetary policy tightening to rein in high inflation and a large current account deficit are expected to further restrain growth,” the report further stated.
The report states that the vulnerability of many of the region’s economies, particularly oil importers, to external financial pressures that could arise from capital outflows has increased due to widening current account deficits and dwindling foreign exchange reserves. If sentiment continues to deteriorate or global interest rates rise further than assumed, for example, because of persistent inflation, in that case, oil importers could face even more adverse credit conditions as they seek to finance growing deficits. This could lead to severe difficulties in meeting food and energy needs and servicing external debt.